China’s urbanisation will continue to drive fundamental demand for homes and real estate.
Speaking on Wednesday at the World Cities Summit China In-Focus Forum in Singapore, CapitaLand’s CEO Lim Ming Yan estimated that there is demand for 35 million homes, based on the expectation that over 100 million people will be moving to the Chinese cities over the next few years.
Mr Lim said on average there is probably a need for five million homes a year over the next seven years, and there is still significant real demand for housing in major cities in China.
CapitaLand, which established its presence in China since 1994, has built 50,000 homes there with another 65,000 homes in the pipeline.
The Singapore-based developer also has a wide portfolio of properties on the Chinese mainland including shopping malls, commercial and mixed-used developments and serviced residences.
During his presentation, Mr Lim also outlined some demographic changes in China, such as the rising middle class and changing consumer aspirations, as well as the ageing population.
He noted that it is also “the end of cheap labour era” in China, and that some companies are shifting inland from coastal areas to keep costs down.
Looking at these trends, Mr Lim said there is opportunity for integrated development projects. However, he warned that the local government funding model could impact overall development.
Mr Lim said that the local government revenue is only enough to cover about 50 per cent of expenses, which means that the rest will have to be funded from other sources including land sales.
“The tendency when this happens is that the local government will tend to want to supply more land, the tendency to overbuild and oversupply land… Sometimes there may be a tendency to sacrifice some long-term benefits for short-term results, that’s an issue we have to deal with,” Mr Lim added.
However, Mr Lim said the central government is aware of this issue and he is confident that they will come up with solutions that will be good for the market, as well as China’s development and its people.
Source : Channel News Asia | June 5, 2014